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RETAINED EARNINGS

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FR Exams › RETAINED EARNINGS

  • This topic has 1 reply, 2 voices, and was last updated 1 month ago by P2-D2.
Viewing 2 posts - 1 through 2 (of 2 total)
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  • August 24, 2023 at 12:48 pm #690630
    Eunice03
    Participant
    • Topics: 88
    • Replies: 70
    • ☆☆

    ?
    330 Paradigm Co (Dec 2011 amended)
    On 1 October 20X2, Paradigm Co acquired 75% of Strata Co’s equity shares by means of a share exchange of two new shares in Paradigm Co for every five acquired shares in Strata Co. In addition, Paradigm Co issued to the shareholders of Strata Co a $100 10% loan note for every 1,000 shares it acquired in Strata Co. Paradigm Co has not recorded any of the purchase consideration, although it does have other 10% loan notes already in issue.
    ANSWER
    ?

    4 Retained earnings
    Per draft

    Paradigm Co Strata Co

    $’000
    $’000
    26,600 4,000

    Add back pre-acquisition loss 6,000

    10,000

    PURP (W2) (600)

    Gain (loss) on equity investments* (400) 700

    Movement on fair value adjustment (W6) 500

    11,200
    Group share of Strata Co -75% x 11,200
    8400
    Group retained earnings 34,000

    Good day,Please I don’t understand why the 6 months interest on the loan note given as consideration was not removed from the group’s retained earnings.I’ll appreciate if you can explain better

    August 28, 2023 at 1:40 pm #690828
    P2-D2
    Keymaster
    • Topics: 4
    • Replies: 6699
    • ☆☆☆☆☆

    Hi,

    Unless the loan notes have already been recorded, which it looks like they haven’t, then we would need to record the interest on the loan notes issued by the parent. I’m not sure why they haven’t in this instance as there isn’t anything to suggest shouldn’t.

    Thanks

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